How customs duty is calculated, with a worked example

Step 1: the customs value

Most countries use the transaction value method. That is the price actually paid for the goods, plus costs you bear that are not already in the invoice, such as freight and insurance to the border, commissions, and licence fees paid as a condition of the sale.

Duty and import taxes are worked out on that adjusted figure, not on the bare product price. Undervaluing an invoice to lower duty is customs fraud, and it is one of the most commonly detected violations, because customs compares declared values with known market prices.

Step 2: the product code and the duty rate

Every traded product has a code in the Harmonized System, an international classification used by almost every customs authority. The code decides the duty rate and any permits you need. Two importers bringing in the same product can get different duty bills if one of them uses the wrong code.

Duty comes in three forms: ad valorem, a percentage of the customs value; specific, a fixed amount per unit, weight or volume; and compound, a mix of both.

How customs duty is calculated: a worked example

This example uses neutral currency units and example rates, not real Cameroon rates. A shipment has a customs value of 1,000 units. It has a 15 percent ad valorem duty and a specific duty of 2 units per kilogram on 200 kilograms.

Value-added tax is usually calculated on the customs value plus the duty already charged, not on the invoice price alone. Forgetting to compound the two is a common surprise.

Charges that are not duty

• Value-added tax or a general sales tax.
• Excise duty on specific categories such as alcohol, tobacco or vehicles.
• Regional or community levies where a trade bloc funds itself this way.
• Inspection or conformity fees.
• Administrative or processing fees charged by customs or the single-window system.

Frequently asked questions